Economy in U.S. Probably Expanded at Slowest Pace in Five Years

The U.S. economy probably grew in the first quarter at the slowest pace in five years as consumer and business spending faltered and the housing slump deepened, economists said before a government report today, reported The Bloomberg.

A 0.5 percent annual pace of growth from January through March, the smallest gain since the last three months of 2002, is the median estimate of 80 economists surveyed by Bloomberg News.

``I'd probably call it a recession,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``It's a pretty bad environment that is unlikely to get better any time soon. The consumer is on very shaky footing.''

Spending by households, the biggest part of the economy, probably grew last quarter at the slowest pace in 13 years as job losses mounted, food and fuel prices surged and property values tumbled. Federal Reserve policy makers are forecast to cut the benchmark interest rate today to limit the downturn.

The Commerce Department's report on gross domestic product, the volume of all goods and services produced, is due at 8:30 a.m. in Washington. The economy grew at a 0.6 percent pace in the last three months of 2007.

Projections in the survey ranged from a gain of 1.5 percent to a 0.8 percent drop. Today's estimate is the first for the quarter and will be updated in May and June as more information becomes available.

Other reports are forecast to show companies reduced payrolls in April and business activity contracted.

Consumer spending probably rose at a 0.7 percent annual rate last quarter, a third the pace of the previous three months and the smallest gain since 1995, according to the median forecast.

Americans have retrenched as employers cut payrolls by almost a quarter million workers so far this year, gasoline prices approached $4 a gallon and home foreclosures surged.

The economy would have contracted last quarter if not for an increase in inventories that was probably caused by the slowdown in sales. The buildup may give way to cutbacks in production in coming months as businesses try to work off unwanted stockpiles.

Accumulation of inventories probably added 1.7 percentage points to growth, according to estimates by economists at Lehman Brothers Holdings inc. in New York. Without that boost, the economy shrank at about a 1 percent pace, Lehman's estimates showed.

``What is good news for the first quarter will actually be bad for the second in this case,'' Drew Matus, a senior Lehman economist, said in an interview on Bloomberg Television yesterday. Companies will ``cut back on production much more aggressively.''